An estate plan should fit the needs of your family members individually. The right way to leave assets to one child may be entirely wrong for another, especially if that child lives with a disability.
Special needs planning gives you tools to provide financial support without putting public assistance at risk. Let’s look at the details.
Understanding the Risk to Public Benefits
Many individuals with disabilities rely on government benefits that are tied to financial need. Programs like Medicaid and Supplemental Security Income (SSI) play a central role in covering basic medical care and monthly living expenses.
To qualify, the person must meet strict income and asset limits. In 2025, SSI recipients may not have more than $2,000 in countable assets. That number doesn’t adjust for inflation, and it doesn’t account for the reality of modern living costs.
If someone receives a gift, inheritance, or settlement in their own name, they may lose eligibility. This can lead to gaps in care, disruption in services, and the stress of reapplying under tighter scrutiny. For families, it’s a frustrating outcome when the original intent was to help.
Using a Special Needs Trust
A special needs trust solves this problem by changing the legal ownership of the inherited assets. Instead of going directly to the individual, the funds are held in a trust and managed by a trustee.
The beneficiary does not have control over the assets, so they aren’t counted as personal property for benefit purposes.
This setup allows the trustee to use the funds to improve the beneficiary’s quality of life. Trust money can be used for education, transportation, home furnishings, medical supplies, and personal care items.
It can also cover therapies, entertainment, or other meaningful experiences not paid for by Medicaid or SSI.
However, the trust must follow specific legal rules to maintain benefit eligibility. Cash gifts for food or housing can trigger a reduction in SSI, though they usually won’t result in a complete loss of benefits.
Who Can Create and Fund the Trust
When the assets funding the trust come from someone other than the beneficiary—such as a parent or grandparent—it is called a third-party special needs trust.
This version is often used in estate planning and can be built into a will or living trust. After the beneficiary passes away, any remaining funds can go to another named heir.
A different structure applies when the trust is funded with the beneficiary’s own money. This might happen after a personal injury settlement or an inheritance that wasn’t redirected in time.
In those cases, a first-party special needs trust is used. These trusts still protect benefit eligibility, but they come with a major tradeoff: Medicaid must be reimbursed from the trust after the beneficiary’s death.
Why Timing and Strategy Matter
Once an individual receives funds in their own name, even briefly, the damage may already be done. That’s why timing is critical. Families who plan ahead have more options, more control, and fewer complications to untangle later.
Naming the right trustee, selecting appropriate beneficiaries, and integrating the trust into your overall estate plan can prevent missteps.
You also want to make sure that life insurance, retirement accounts, and other non-probate assets do not accidentally pass to your loved one outside the trust.
It’s not enough to make a good decision—you need to make the right one at the right time, with all the legal pieces in place.
The Bottom Line
Special needs planning allows you to provide for a loved one with a disability without interfering with the support they depend on. A properly structured trust can protect access to healthcare, housing, and other essential services while enhancing quality of life through supplemental care.
These decisions carry long-term consequences, so it’s important to work with a licensed estate planning attorney who understands the rules around Medicaid, SSI, and trust law. With careful planning, you can offer meaningful support and long-term stability without causing unintended harm.
Let’s Get Started!
To schedule a consultation at our Overland Park, KS estate planning office, call us at 913-521-2828 or send us a message through our contact page.
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